The finances of the US armed forces have been in a state of near-continuous audit for decades and despite spending billions of dollars and thousands of person-years trying to make sense of what the military spends, we're no closer to an answer, and no one disputes that there are trillions of dollars' worth of unaccountable transactions (but importantly, not trillions of dollars in spending) that make it impossible to figure out whether and when and how the Pentagon is being ripped off, or wasting money, or both.
That's what he's done in The Pentagon’s Bottomless Money Pit, an 8,000-word explainer on the Pentagon's budget crisis that is one of the clearest pieces of financial writing I've ever read, drawing in the structural, economic, personal and historic elements that have created the "bottomless money pit" that is the US military.
The problem is a snarled knot of many smaller problems. For example, the Pentagon has terrible IT systems. Leaving a "quantity" field blank in a purchase order form caused the computer to place an order for 990,000 units, for a total of $3.5 trillion. The order never went' through, but the system also had no way to unwind the transaction, so it was just left on the books, and mysteriously deducted later, creating an accounting overhang a third the size of the US GDP.
When the military manages to actually order things, it doesn't keep track of things. Key military materiel like nuclear weapons have historically not even been assigned serial numbers or tracking tags (the Air Force once accidentally shipped nuclear nose-cones to Taiwan, where they were expecting a shipment of helicopter batteries) (oops).
To make things worse, the system is genuinely full of waste and pork, which any kind of real audit would uncover. The military contractors who benefit from these scams have gotten so rich from them that they can afford to buy key Congressmen on the relevant committees, and so every legislative attempt to force the military to genuinely account for itself has died.
Which is not to say that there haven't been audits. There have. These audits have run for years, cost billions (literally) and either concluded that the system was unauditable as it stood, and needed a complete overhaul; or have later been revealed to be fraudulent and had to be retracted.
And that's where those trillions have gone. The military hasn't lost trillions of dollars, but its books contain trillions of dollars' worth of transactions, only a small fraction of which are real, and the noise in the system lets grifter military contractors rip off the taxpayer for billions, and their campaign contributions have ensured that this will never be fixed.
The Pentagon just committed to giving billions more to Big Four auditing companies to conduct another audit, though the best we can hope for from all this is that they will simply repeat the conclusions of the other auditors who've gone before them.
The Defense Department, for the most part, does not know how much it spends. It has a handle on some things, like military pay, but in other places it’s clueless. None of its services — Navy, Air Force, Army, Marine Corps — use the same system to record transactions or monitor inventory. Each service has its own operations and management budget, its own payroll system, its own R&D budget and so on. It’s an empire of disconnected budgets, or “fiefdoms,” as one Senate staffer calls them.
Instead of using a single integrated financial accounting system that would maintain a global picture of its finances at all times, the Pentagon built another bureaucracy to pile atop the others, called the Defense Finance and Accounting Service, or DFAS. Created by then-Defense Secretary Dick Cheney in 1991, DFAS is in charge of collecting financial reports from all the different fiefdoms at the end of each month. DFAS is like a tribune traveling on horseback at month’s end, collecting a pile of scrolls from each castle.
In 2013, Reuters published a brutal exposé showing how DFAS accountants conducted a mad scramble at the end of each month to try to piece together records of transactions to justify spending. But in thousands of cases a month, no records existed. “We didn’t have the detail,” one accountant explained.
Complicating matters is the fact that money is allocated to the military on different schedules. If Congress gives the Navy $53 billion for operations and maintenance, as it did this year, the service is expected to spend all that money that year. Such expenses — payroll is another — are called “one-year money.” Meanwhile, research and development might be “two-year money,” and contracting might be “five-year money.”
The Pentagon’s Bottomless Money Pit [Matt Taibbi/Rolling Stone]